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5.31.2014

Back in 2008-09 we used to regularly observe Bank Failure Friday. Hundreds of banks got themselves in trouble by extending too much credit to questionable borrowers. As soon as the value of the collateral (homes, commercial buildings, etc.) started falling, the banks were toast.

But who could possibly manage a bank so badly in an era of massive money-printing from the Fed and rising asset values? If a borrower defaults on a loan, you just seize the collateral, which is worth a lot more now than it was a few years ago when you made the loan.

Nevertheless, a few bankers are still finding ways to blow up a bank even in the most forgiving imaginable environment. Yesterday brought back Bank Failure Friday for the ninth time this year.

5.07.2014

Broadly speaking, the Obama administration has pursued a course the opposite of that taken by the Kennedy and Johnson administrations in the 1960s (and the Reagan administration in the 1980s). Kennedy-Johnson enacted across-the-board tax cuts: Promoting growth came first, redistribution later. By putting redistribution first and sacrificing growth, the Obama administration got neither.

Ironically, despite often repeated demands for increased redistribution to favor middle- and lower-income groups, the policies pursued by the Obama administration and supported by the Federal Reserve have accomplished the opposite. When the president campaigns in the midterm election, he will talk about the relative gains by the 1%. Voters should recognize that goosing the stock market through very low interest rates, not to mention the subsidies and handouts to cronies, have contributed to that result.

We are now left with the overhang. Inflation is in our future. Food prices are leading off, as they did in the mid-1960s before the "stagflation" of the 1970s. Other prices will follow.